Two Citigroup Inc. affiliates have agreed to pay $179.5 million after being charged by federal regulators for misleading investors in hedge funds that later collapsed.

On Monday, the Securities and Exchange Commission (SEC) announced the settlement with Citigroup Alternative Investments, a subsidiary of the bank, and Citigroup Global Markets, an affiliated company. The affiliates will pay $139.9 million plus $39.6 million in interest. The money will be returned to investors in two hedge funds managed by the firms.

Both firms as part of the settlement, do not have to admit any wrongdoing. Both firms did promise to refrain from future violations of securities laws. The firms also were censured, bringing the possibility of a stiffer sanction if the alleged violation is repeated.

Both companies sold securities in two hedge funds from 2002 to 2007, raising nearly $3 billion from mostly wealthy investors or institutions. Representatives told investors that their money was protected in low-risk funds that were similar to bonds. In 2008 the hedge funds collapsed following the start of the recession. The affiliates lost billions of dollars for their investors.

The settlement states that the funds manager failed to disclose “very real risks” of the funds. Managers at the funds also provided verbal feedback that directly conflicted with fund marketing materials.

The fund managers “falsely assured them they were making safe investments even when the funds were on the brink of disaster,” SEC Enforcement Director Andrew Ceresney said in a statement.

New York-based Citigroup said in a statement that it was pleased to have resolved the matter.

Peter Mondrose is the Editor-In-Chief at BusinessPundit. He received his degree in Economics in 1998 and a second degree in Journalism in 2004. He has served as a financial adviser, market trader, and freelance journalist for the last 11 years. When he's not investigating market conditions and reporting on workplace news, he can be found traveling with his wife, dog, and laptop. He can be reached at PeterMondrose@BusinessPundit.com or (929) 265-0240.